Are you interested in investing in multifamily real estate but want to learn more about the process first? If so, you’ve come to the right place.
With the right plan and research, investing in real estate can offer steady cash flows, tax benefits, value appreciation, and more. Multifamily real estate investing allows you to reap the rewards as each property produces income.
Multifamily housing includes any residential property with more than one unit. Examples of multifamily rental property include apartment complexes, duplexes, condominiums, and townhomes. You can rent out each unit with individual terms, lease requirements, costs, etc.
Many novice investors begin with multifamily housing to make passive income. If you select the right property in the right location, you can enjoy a constant influx of new renters seeking a unit.
Unlike single-family homes, multifamily housing requires more day-to-day operations to reduce vacancy rates. Rather than dealing with one tenant’s needs, you must juggle maintenance requests, late payments, waste disposal, utilities, mail, and more for multiple families at once. Multifamily housing is a much larger initial investment, requiring more careful research into real estate markets and interest rates on investment loans.
Before investing in multifamily real estate, you must consider the most challenging aspects of the commitment you are about to make. The market and location where you purchase the property, the number of units you must maintain, and your overhead costs will impact your general success.
The real estate market fluctuates depending on where you are. You cannot assume that a property will do well in your area. We recommend researching the following trends to determine your location’s viability:
Location is the most critical aspect of reducing vacancy rates. Most renters prefer their desired location over anything else. But how do you know which areas are the most desirable in your town?
First, the most expensive rental listings typically appear around hot locations. While you may not want to buy the most expensive building in town, you can use this information to gauge your decision. For example, if you find that the best location is the center of downtown, you could select a property that’s just a short bus ride or a mile’s walk from downtown.
Typically, the most desirable locations include the following:
Now, consider how many units your multifamily real estate should ideally contain. Most beginner investors start with smaller duplex or triplex single-building homes that include only two or three units. When considering size, you must consider how you will maintain the units and how much income you hope to see.
Smaller properties with just a few units offer a low entry point, though smaller rewards. Larger properties with dozens of units or more offer more cash flow but require more overhead and maintenance. You may need to hire landscapers, maintenance teams, and more to help you handle the responsibilities.
The costs are likely your biggest consideration. First, you must factor in how you may finance the investment. If you live in one of the units on your property, you may qualify for perks like owner-occupied financing.
Keep in mind that multifamily property investing requires a considerable initial outlay. If you’re financing, most banks require at least a 20% down payment, which can add up quickly if you’re looking at a million-dollar or more investment. In addition, you’ll have numerous upfront fees.
You must budget for future taxes, interest rates, and maintenance costs when financing. Beyond the initial purchase price of the property, you will need to continue paying for things like:
Multifamily investing is risky and challenging, like many other investments. Because of the potential risks and rewards, it comes with many pros and cons. We recommend weighing the potential advantages and disadvantages when considering your options.
The pros of multifamily real estate investing include the following:
The cons include:
The best way to reduce potential investment cons is by making smart choices upfront. Carefully review the above consideration, consider meeting with a financial advisor, and do as much research as possible to reduce risks.
Investing in multifamily real estate can be an excellent opportunity for many, but it comes with important considerations. If you want to minimize future costs, consider a waste management solution that can make property ownership a bit easier.
At Houston Waste Services, we provide scalable, tailored waste services for multifamily properties with full customization to your needs, whether it be a high-rise building, garden-style property, or anything else. Call us at Houston Waste Services today at (281) 817-1106 or fill out our online form to request a personalized quote from our expert team.